The Budget Measures Implementation Act 2025 introduces several tax-related measures, most of which are effective as from 17 April 2025, and a summary of these measures is contained below.
Vacation of Immovable Property
The Income Tax Act already exempts any gain arising from the transfer of one’s own residence, if it has been occupied for at least 3 years and it is disposed of within 12 months of vacating the property. A new proviso has now been added to clarify the applicability of the exemption in the case of a divorce or separation. The proviso clarifies that the property will only be deemed as vacant when neither spouse continues to occupy the property as the sole ordinary residence. Therefore, if only one of the spouses continues to occupy the property, the exemption may still apply provided the other conditions are satisfied.
Deduction for the acquisition of business permits, concessions and commercial leases
Article 14 of the Income Tax Act has been amended to provide for a deduction with respect to capital expenditure incurred on the acquisition of a business permit, concession, or a commercial lease. Therefore, a person carrying on a trade, business, profession or vocation may now claim a deduction with respect to such capital expenditure incurred on or after 1 January 2025. The said deduction is also applicable to capital expenditure incurred for the extension, renewal, or modification of business permits, concessions, or commercial leases.
The deduction does not cover any sums paid or attributable to the acquisition of a business, business goodwill, or rights in accordance with an emphyteutical concession, or any intellectual property or rights, or any other tangible or intangible asset other than the business permit, concession or commercial lease as defined in the legislation. Moreover, the business permit, concession or commercial lease cannot exceed 15 years for the deduction to be allowable. The deduction is spread over the duration period. Also, a document in writing is required to enable the taxpayer to claim this deduction. An acquisition from a related party falls outside the scope of this new deduction.
The following aspects are also relevant in determining the applicability of the deduction:
● If there is the option to extend or renew the permit or lease, the permissible extension/renewal shall be deeded to be part of its duration for all intents or purposes.
● Right of deduction ceases if:
- Permit is subsequently transferred, leased or ceased,
- Property is sublet,
- Permit or property is no longer used or employed in the production of income from a trade, business, profession or vocation.
● If permit is transferred, or lease is assigned or sublet, the cost of acquisition must be reduced by the deductions claimed in determining the gains or profits on such transfer, assignment or sublease. The deduction cannot exceed the cost of acquisition.
School Fees deduction
The deduction for private school fees is being increased, with effect from year of assessment 2026, as follows:
- Secondary School – €6,500 (from €2,600),
- Primary School – €4,600 (from €1,900),
- Kindergarten – €3,500 (from €1,600).
Elective Tax
The Budget Measures Implementation Act introduces a new Article 22B to the Income Tax Act. The new article provides that the Minister responsible for finance may make regulations for the charging and levying of an Elective Tax and that such regulations provide for:
- the scope, applicability and amount of such tax,
- the manner in which the elective tax is to be calculated, paid and collected,
- the obligations in respect of the payment of the elective tax, and
- such other conditions and consequences in relation to the application of the elective tax.
No further details are available at this stage.
Personal income tax rates
The personal income tax rates applicable to married couples, singles and parents have been updated and are effective for year of assessment 2026. A proviso now allows the rates to apply even in case where a child is gainfully occupied or earns more than €3,400.
Endangered Tax
A new proviso has been introduced to the definition of endangered tax. This provides that if the Commissioner is satisfied that the tax, or any portion thereof, has been paid under the Final Settlement System Rules, such payment shall not be considered endangered tax. This is retroactive from 1 January 2025.
Criminal Offences
A person who fails to submit a return which he is required to furnish in accordance with the Income Tax Acts may be liable to a fine of a criminal law nature, to treble the amount of the undercharged tax and / or imprisonment. Also, the Commissioner is not required to sanction the prosecution of offences under the Income Tax Acts and therefore, the police may now initiate prosecutions without the need to obtain consent from the tax authorities.
Should you require assistance on tax related matters, please reach out to your contact person at EMCS or send an email to: corporate-services-team@emcs.com.mt
